Sunday, February 15, 2009

Inflation, financial markets and fiat money

From a column in the latest issue of Outlook Money:

Don't be surprised if [educational] costs quadruple by the time you need to reach out for the chequebook for your kid's higher studies. This means that, unlike our parents, we can no longer invest in lower-risk, fixed income options since the growth of our investments will be hopelessly outsprinted by inflation.

Now comes the tricky part. To catch up with runaway costs, you will perforce need to mount the high-speed but higher-risk horse of growth investments such as equity mutual funds (MFs), unit-linked insurance plans (Ulips) that have a high equity exposure and perhaps some stocks.

Yeah, nothing like some good old fashioned scaremongering ("Think of the children!") to drive the suckers into the markets so that the insiders can make their killing. On a related note, consider this:

Under a commodity standard, people could save for the future by accumulating gold and silver coins. The coins’ value appreciated over time because of their natural increase in purchasing power, as the relatively slow increase in the production of precious metals was outpaced by the much faster increase in the production of other goods and services. Today, only a fool would try to save for the future by piling up dollar bills. Everyone is forced to enter the financial markets, which are risky even for knowledgeable investors, in order to prevent the value of his retirement savings from vanishing before his eyes